09.09.2004 Feature Article

Can Businesses Compete Against The Giants, if...?

Can Businesses Compete Against The Giants, if...?
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COMUNICATION COSTS ARE SO HIGH IN GHANA? How do you compete in a global market with the odds against you in price, location, and business costs? Photo at Abose Okai auto-mechanical workshops, Accra, Ghana. (Photo by K. Danso)

The key to any business success in today's global business lies in communication. No matter how you call it, ICT, IT, without good and cost effective communication systems, one cannot compete. Period. So how do Ghanaians, be they in private or business, communicate and compete if they have to pay 30 to 60 times more for the price of the same communications services as American or British?

Since returning home in July 2004, I promised to write from the ground floor in Ghana, and I am keeping my promise. This is my 9th dialogue correspondence. This time I am talking real nitty-gritty of costing and budgeting to survive in a business here in Ghana.

One of the key and perhaps the most important aspect of survival in Ghana is being able to set up a small business of your own to take care of your family and relatives. Even at the small level one employs perhaps five to ten people in Ghana, plus another twenty in contract labor. To go further beyond one's immediate needs, compete effectively and be profitable to grow the business, the cost accounting becomes skilful. One has to be competitive. To be competitive, business textbooks and literature will tell you one has to choose from either or more of the following: product differentiation, price leadership, or product distinction. Most people with business degrees will know what I mean in using these big business words. However, all it means is that you have to sell products that are either different from the ones on the market, and/or you have to have prices that are better, or you have to demonstrate that your products are far better than the equivalent ones on the market.

Our mothers and other non-sophisticated market women know these principles. For example, that if your tomatoes don't look very good and juicy, you have to reduce the price to attract customers, and vice versa if the yams or plantain are very nice looking, you can afford to charge higher prices and still sell to the customers.

Our democracy and adoption of free market systems implies competing with companies like Coca Cola who are selling bottled water in Ghana to compete with the small businesses that are selling sachet water and bottled water. Recent research shows that one needs very little, something of the order of $5,000 to set up your own company and distribute your own sachet-water. In 1992 I had predicted bottled water becoming a good business, especially since the President or Chairman Rawlings at the time had blasted the people who were elite enough to drink bottled water. However little did I know how accurate I was. I even underestimated the market. I have heard something like 120 companies making the sachet water, and throughout the country. Bottled water demands more than that. However what does it take for a company to take the next step and compete against the giant companies on our own soil and territory? Let's take one at a time.

The Cost of Doing Business: Most people have a feeling that the cost of doing business factors in the selling price they have to charge in order to compete. Today, almost all businesses need to use phones to succeed. Those who do not use phones often end up taking to the road to conduct any simple transaction or discussion. 50% of the traffic congestion in Accra my be due to people traveling to conduct business that could have been done if they had access to phones and a phone book or if they had mail delivered at home (another topic for a later day). Face to face meetings is becoming a thing of the past since the world has expanded and brought many millions together. Western companies use effective communications to save costs of production and distribution. Our third world government leaders have not learnt to budget yet, and still have Ministers and dignitaries traveling daily to have any simple discussions. The cost of a cell phone is like a monthly salary, but people are forced to own them. Ask Americans how they would feel like buying cellular phones at $3,000 each and having to pay $0.87 per minute to use it? They will say “Forget it” – simply because line phones are easily available at almost every home, office, businesses and public places. Today ordinary people carry cellular phones in Ghana so they can communicate. This has come about due to the extreme neglect of line phones in the last 30 years in Ghana since the Acheampong regime in the 1970s when thieves used to cut off the copper wires from telephone poles. Nobody replaced them. Where was our leadership?

Phones are not luxury items anymore. If a person who wants to have food delivered from the village is unable to communicate with the buyers and trucks, they end up with losses such as rotten food. The net result is an increasing cost of food overall, and further keeping the farmer poorer. The younger educated potential farmers become disinterested if they don't see many farmers who can afford a decent life-style. A study by this writer has shown that one of major barriers to business development in Ghana is the high cost of communication. The cost of using cell phones in Ghana is about $0.45 to $0.87 per minute. An analysis shows US customers pay approximately $0.05 per minute. Costs vary depending on whether one opts to be billed, or uses the pre-paid cards. Line cost for using the phone in Ghana has also proven to be over-priced, considering the initial cost of equipment and cost of labor in Ghana. For example my company in Ghana started with only 2 phone lines, one dedicated 90% for dial up Internet use. I received my July 2004 bill, and without itemization, my bill is about C1,086,300 for only about 3 weeks of use since I started using Internet service (the lines were even down for 5 days). This part is not even itemized to show me how many minutes I used the line for Internet. In addition to the itemized portion of the bill, the other portions add up to another C 1 million, making a total bill of C2,084,956. Calls from a land line to a cell phone cost C1,800 per minute. A 17 minute call cost C32,400. Funny thing is that none of these was discussed upfront at the time of service, and the phone book from which one would normally read the charges is 4 years old!

Profit and Business Ethics: Even in a free enterprise market, the Western or developed world has come to realize that there is such a thing as business ethics. Even at the private corporate level, ethics programs, conflict of interest in corporate governance have been written on and discussed by such notable Professors at A.J. Felo (2001) (ref. Ethics programs, board involvement, and potential conflicts of interest in corporate governance. Journal of Business Ethics, 32, 205-218.). Americans have a word called price gauging, which would have a similar meaning as what we call in Ghana “cheating”. Some may use such words as “rip-off”. Even in a society like that US where an average salary may be $3,000 per month, a dial-up Internet connection through major carriers like MSN, America Online, is about $25 per month or only 0.83% of income. In Ghana, assuming an average guesstimate income for a business or a highly-paid salaried worker of say C4 million per month, a bill of C1 million for Internet use or C2 million for phone use represents 25% to 50% of their income. This is approximately 30 to 60 times the cost for similar service in an advanced country like the USA. Such a high affordability barrier discourages most small businesses from having their own Internet access, or even having a phone line. The writer has interviewed some small business persons in Ghana whose skills could be leveraged in a global market such as the USA. However, my own sister, a fashion designer, has refused to have a phone based on the bad experience of excessive phone bills of others.

In today's global village market, if one is not able to compete due to a high entry barrier, one cannot survive. This is simple common sense. Major global giants like Coca Cola can afford to buy their own satellites or even buy the whole Ghana if they so desire (smile).

Instead of having a firm policy of regulation of public utility companies, our leaders in parliament and in government seem to close their eyes. Most of them carry two or more cell phones and embarrassing enough have to use this for their business more than even their land lines. Do they have the guts to regulate? Another aspect of business ethics relates to gift giving to executives and policy makers in Ghana. Common sense indicates that gift giving to a Minister of government is not the same as giving to a Church Minister on Sunday. The fact is that the laws in Ghana do not seem to prevent MPs and Ministers and even Presidents from accepting gifts from business people. (I stand to correction if the Laws are present but not enforced). The case of former President and Chairman Rawlings in accepting gifts of Toyota Landcruisers is an example that has not been prosecuted. There are perhaps many Ministers and MPs receiving major gifts that a globally impartial examination may consider inappropriate or unethical.

Charging whatever one wants because one has a corner on the market is one form of anti-competitive behavior that cripples an economy or further technological development in an industry. The case of AT&T, America Telephone and Telegraphs in the USA is a good example that prevented any other company from developing new products and had stifled the American market for decades and generations till the US Congress found the wisdom and courage to break it down. Since the AT&T break up in he 1980s, prices of phone calls in the US have only one place to go, downwards. We who lived in America enjoyed price drops all the way to current levels of $0.05 (5 cents) per minute for calls across 3,000 miles of land. In Ghana, a call to a cell phone from a land phone next door costs C1800 or $0.20, four times what it costs to call 3,000 miles in the USA.

Almost every body in Ghana assumes that is the way it is, and that is the way it should be. No! The State has a right, even in America, to regulate the profit margin of publicly owned public utility companies such as phone companies, electricity, water and garbage companies. Ghanaian government taxes people and businesses heavily. Government should take responsibility to regulate and moderate the cost of communication, the core cost of doing business so our people can survive and compete also. Places of concentrated talent like Abose Okai and Kumasi Magazine do not seem to have a simple design plan for the workers. It is a jungle of people and machinery mixed like in a soup bowl in Accra. It is a shame indeed that the IRS has an office at the center of Abose Okai but nobody thinks of planning the place with sanitation, decent roads and even parking places. How dare anybody tax such people? Our President's goal may be building a Golden Age of business. Finding ways to make the tools of business available and affordable to all is what it takes. One cannot do without planning and without modern communications today.

In summary, if small businesses are to survive and learn to compete globally in a free enterprise market, they must be given the same opportunity for cost cutting as the global giants get in their home nations, as well as modern tools such as phones and the Internet at globally competitive prices. If a US company is able to charge $0.05 in America and still makes a profit, there is no reason they cannot charge the same and make a good profit in Ghana where they pay employees an average of 20 times less. It is only the President of the nation and Parliament who can prod and have such changes made in the fair and equitable trade with the rest of the world or our people to compete fairly. Kwaku A. Danso, President/CEO Amtek Engineering, Real Estate & Finance 3 Boundary Road Ext., East Legon, Accra, Ghana Tel. 021-517-206 Cel. 0244-330-486 Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.

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